what should consumers know?

The easing of Covid restrictions has had a significant impact on the economy. While it boosted consumer spending and increased confidence and demand, it also raised costs for providers of goods and services. These impacts of course ripple through to the consumer at all levels and have a continuing effect on the economy.

Amer Ali, Associate Lawyer in the Residential Transfer Team at Black Lawyersshares his point of view on the effects of rising inflation on the real estate market.

Current inflation

The current inflation rate is 5.1%, the highest level since 2012. However, if the prices of goods and services continue to rise, we could see further growth in the inflation rate. This increase is likely to have an impact on the Bank of England’s base rate and force the Monetary Policy Committee to raise it. This in turn would have a domino effect on the real estate market.

It is very likely that mortgage interest rates will increase due to the current rate of inflation, which will impact new and existing home ownership.

What can consumers do?

If a fixed rate mortgage is coming to an end, homeowners are advised to confirm their options with their mortgage adviser until the inflation rate has peaked.

For first-time buyers waiting for the market to “cool down” and prices to drop, it might be worth reconsidering. Affordability could be affected if potential buyers wait too long and we see interest rates rise again.

Sellers should consider unloading their property now while interest rates are low and buying power remains in the market.

Investors and homeowners may want to remortgage their portfolio while interest rates are still relatively low, or even consider expanding their portfolio.

In the event that inflation causes interest rates to rise, the real estate market will shift somewhat towards the rental market, simply because purchasing power will slow down. Therefore, it would be prudent to capitalize on the opportunity and increase a rental portfolio if that is a viable option.